If you’ve recently received a large payout, inheritance, or, money from family member, using the money as a deposit can be a great way to get onto the property ladder. Before you get too excited, you may still need to prove that you can save money before you get your home loan. A home loan deposit isn’t enough without genuine savings.
Who needs to show genuine savings?
Generally speaking, if you are borrowing more than 85% of the property value, you’ll need to show a history of savings. It’s all about the risk level to the bank and if you don’t have a large deposit (20% or more), you’re considered higher risk than someone who does.
The more money you borrow, the more likely you are to need to show a history genuine savings.
However, there are some lenders who do not require genuine savings and accept other examples of a savings history or a family guarantee for 100% of the purchase price plus costs.
What are genuine savings?
Just to add a layer of complexity, each lender defines ‘genuine savings’ differently. That said, essentially the following items are generally considered genuine savings;
- Regular savings accumulated over 3 months
- Paying off unsecured debt
- Equity in real estate (ie paying down an existing mortgage)
Tip! It’s much easier to prove that the money is yours if the account is in your name.
In some cases, a lender may accept your rental payments as an example of genuine savings if you’ve had a minimum of twelve months continuous rental history with payments made on time.
Lenders typically ask for a minimum of 5% of the purchase price for a home buyer and 10% of the purchase price for an investor. For example, if you are looking to purchase a property for $600,000 – you’ll need a minimum of $30,000 genuine savings. The rest of your deposit can come from anywhere you like.
What isn’t considered genuine savings?
If you haven’t saved at least 5% of your deposit through squirreling it away each month, you may have to rely on other sources. These are considered ‘non-genuine savings’ and your home loan options change to lenders who provide ‘No genuine savings home loan’ options.
The following fund sources aren’t accepted as genuine savings;
- Gifts or inheritance
- Tax refund
- Lump sum deposits (proceeds from the sale of property is an exception to this)
- Selling your car or other assets
- First Home Owners Grant (FHOG)
- Funds held in a business account
- Any borrowed funds e.g. a personal loan
- Developer’s or builder’s rebates/incentives
No genuine savings home loan
Don’t despair, there are options available even if you don’t have a history of genuine savings. Some lenders do understand that it’s hard to save money, particularly if you’re renting in Sydney! You’ll just need to tick all the other boxes to give you the best chance of a home loan approval;
- Good credit history and score (we can check your credit score for you for free)
- Stable employment (and not on probation)
- Consistent rental history for the last six months (tenants on the lease must be the same as the borrowers on the home loan application. Landlord cannot be a family member.)
- Bills paid on time
- Other debts are closed or are under control (ie. Personal loans are closed or credit cards are paid in full each month)
The type of property you are looking to buy is also important.
- No genuine savings home loans are usually only available for buying an owner-occupied property, not for investment
- Generally, not available when purchasing vacant land or constructing, however some lenders will consider this security type
- Max land size with most lenders is 2.2ha
- Properties in small towns or remote areas may not be considered
If your deposit consists of an unusual sum of money from an external source, you’ll need to make sure you meet the lenders requirements on that too.
Gift: The gift must be in your account and a gift letter must be provided by the contributor to confirm that the gift isn’t a loan.
Bonus/Dividend/Commission payment: Provide a payslip evidencing payment and bank account statements.
Inheritance: Provide a letter from the Executor confirming the amount and date that the funds will be received.
Non-real estate asset sale: Provide evidence confirming the details of the asset that you sold (ie a car or boat)
Tax Refunds: Provide a copy of your Notice of Assessment.
Securing a home loan without genuine savings
As an experienced mortgage broker, Mint Equity understands there are many variables when it comes to buying property. We work with over 40 lenders, each offering a variety of different products to suit the needs of borrowers. Give us a call to discuss your options and we can provide you with free guidance and facilitate your new home loan.